Pensions Bulletin

Much of the Pension Regulator’s work in ensuring those connected with workplace pension schemes properly perform their duties is conducted in private. Occasionally the Regulator goes public.

Some of the findings of the Regulator’s fifth annual survey on scheme record keeping make uncomfortable reading and leave the Regulator with little choice but to take action.

10% Still Not MeasuringAround 10% of schemes are still not measuring their common data, which according to the Regulator they should be doing annually. This figure of 10% has not changed significantly from last year, indicating a hard core of schemes are either ignoring the Regulator or are unaware of their responsibilities.

Lack of TimeThe most common reasons given for not measuring data were a lack of time or that it was not considered a priority. These are not the sort of excuses that will go down well at the Pension Regulator’s office in Brighton.

Defining DataBoth common and conditional data should be measured. Common data is that used

Record Keeping Levels Disappointing

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to identify scheme members and includes members’ names and addresses, including postcodes and national Insurance numbers. Conditional data is scheme-specific information needed to calculate member benefits. Although the Regulator is yet to set any specific targets for measuring conditional data, schemes are still expected to measure it, and it is good practice to do so annually.

Strategic ApproachThe Regulator is now planning to overhaul its strategic approach, which could lead to a tougher stance. Any schemes that have not measured both common and conditional data in the last 12 months should find the time to do so and treat it as a priority. The Regulator is “highly disappointed” and action in this area would come as no surprise.

Quarterly update – July 2014

Welcome to our new look Pensions Bulletin quarterly update covering and highlighting current issues in pensions. Catch a glimpse of our new look on the Xerox website (www.xerox.co.uk/hrconsulting), and bookmark this site for future visits.

2 Pensions Bulletin – July 2014

Defined Ambition Two Years On

Short-hand TitleThe term ‘defined ambition’ was a short-hand title to encapsulate the many models which could deliver this concept. Some of the options looked at were based on traditional DB and DC models, such as flexible DB schemes, or DC schemes with some form of guarantee. Collective DC (CDC) schemes, which pool employer and employee contributions, with a member’s eventual pension not fixed but dependent on the aggregate available assets in the scheme at the time, were also considered.

Big Support for Shake-upIn its response to the consultation, the government has signalled its intention to push ahead with proposals to make defined ambition pensions a reality. The government claims “big support for the shake-up” and that 28% of employers “may be interested” in defined ambition schemes. Behind the spin this means 72% of employers are not interested, and it remains to be seen how many of the 28% who “may” be interested are prepared to take the matter further. Furthermore plans for flexible DB schemes are to be dropped altogether as there was a lack of public support from employers about the proposed design.

Wrong Point in the CircleThe problem for the government is that these proposals come at the wrong point in the cycle. While this is not its fault, employers who have gone through the pain of closing their DB plans and adopting DC arrangements will take some

persuading to take back some of the risk they have so recently jettisoned. Equally, employers still running DB schemes may think twice about announcing a weakening of their pension provision. Any take-up of defined ambition is unlikely to happen in the short-term.

Putting Framework in PlaceHowever, the government is quite rightly putting the framework in place, so it is there when the time is right for employers. With this in mind, despite the apparent current lack of interest from employers in flexible DB arrangements, it is perhaps a little disappointing that the government is not taking forward this part of the proposals.

Two years ago the Pensions Minister challenged the pensions industry to come up with ideas to fill the market gap between defined benefit (DB) pensions, which were in terminal decline and defined contribution (DC) pensions, which he believed were in serious danger of not delivering. There followed a consultation based upon the assumption that employers wished to provide employees with greater benefits than traditional DC schemes generally deliver.

Greater CertaintyHowever, the Pension Schemes Bill will enable new approaches to provide scheme members with greater certainty than in traditional DC schemes. The legislation will set out three key categories of pension scheme determined by the presence of a promise. DB, shared risk (defined ambition) and DC. It will also allow the introduction of CDC schemes. CDCs operate in the Netherlands and Denmark where membership is compulsory. They perform better on a larger scale as the risk is borne largely by younger members who, if things go badly wrong, may find there is no money left for them in due course.

Pensions Bulletin – July 2014 3

Are you driving blindly towards your retirement?

You talk we listen, no it’s not an advertising slogan. Here at Buck Consultants at Xerox employers were telling us of their difficulties in engaging with employees on pensions issues. To boost engagement between employers and their staff we have launched a mobile app for our reward portal, Compass, which enables employees to view details of their employee benefits at any time on their smartphone.

For example, Compass allows employees to set an appropriate retirement income target which, together with an online questionnaire, identifies their attitude to risk and makes them aware of how much they should be putting into their defined contribution pension arrangement to reach their target. Employees can actually see the estimated probability of reaching their retirement income target on their smartphone, wherever they are,

understand the choices they are currently making on their retirement income. They might not do anything differently but if they don’t, at least by looking at the instruments on the dashboard during the journey, they will not be surprised when they arrive late for their meeting or run out of fuel before their journey is ended.

Moreover with ever increasing numbers of people using their smartphones for an ever increasing array of things, making employee benefit information easy to understand and readily available twenty four hours a day makes perfect sense for an employer anxious to engage with its staff. Users also have the option to provide direct feedback to their employer by individually rating benefits which can help organisations (and us) drive value in terms of benefit spend. We are still listening.

Can you imagine having to be at a particular place at an exact time, and driving there without looking at your watch, the fuel gauge or the speedometer? That’s what many people do with pensions.

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The views expressed in this bulletin are my own and don’t necessarily represent the positions, strategies or opinions of Buck Consultants at Xerox.

– David Piltz, Head of Trustee Services Buck Consultants, A Xerox Company

on the train home or in the pub, and if necessary make appropriate changes either to their target, or to their appetite for risk, or amount they are prepared to contribute. They can find out how much more pension they could get on retirement if they increased their savings into their pension arrangement by the equivalent of the cost of a pint of beer a day.

Can you imagine having to be at a particular place at an exact time, and driving there without looking at your watch, the fuel gauge or the speedometer? That’s what many people do with pensions. They want to retire on a given day, often the day they reach 65, and they never once enquire how they are doing against their hoped for income at retirement (that’s assuming they have even thought about an income target). Compass helps employees better

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Events in 2014We offer a wide range of training courses for trustees, members of governance committees and other professionals who work in the pensions industry.

Defined Benefits introductory level Friday 3 October, London

Defined Contribution introductory level Friday 14 November, Manchester

Interested in Booking a Course?Contact us on: hrconsultinguk@xerox.com

Recent Publications• Investment Spotlight• Market Update

To view, download or print a copy visit www.xerox.co.uk/hrconsulting or speak to your usual consultant.

Industry EventsEmployee Benefits Live 24-25 September, Olympia London

Health & Wellbeing stream sponsor Day 1: 13:10-13:50 Tackling mental illness in the workplace

Results from our 6th annual global wellness survey reveal this is a growing problem for UK employers. Hear experts from our Health & Productivity practice outline the benefits of early detection and early intervention, and how guest speakers, EE have successfully incorporated mental health programmes as part of their wellness strategy.

Visit us on stand 623

NAPF Annual Conference & Exhibition, 15-17 October, ACC Liverpool

Visit us on stand 314

Enrolment Assured A ready-made package for only £5,000* for employers with no pensions plan in place or who wish to set up a new arrangement for their employees. Let us get your auto-enrolment signed, sealed and delivered. Speak to our automatic enrolment experts on 0808 100 1070 or visit www.xerox.co.uk/hrconsulting *excludes VAT

60 Second UpdateThe Regulator has had a busy quarter publishing, amongst other documents: • latest annual funding statement• latest annual analysis of UK defined

benefit and hybrid schemes, based upon valuation and recovery plan data

• latest annual scheme governance and record keeping surveys

• updated code of practice on scheme funding, in the light of its new statutory duty to “minimise any adverse impact on the sustainable growth of an employer”, in respect of scheme funding

• survey report into the presence of DC quality features amongst single employer DC trust based schemes

Pension Protection FundThe Pension Protection Fund (PPF) has consulted on the new framework to be used to calculate PPF levies for a three

year period, starting from April 2015. Levy payers should work with their advisers now to ensure that the information being used by Experian is accurate, and to understand the implications on their levy.

New EU Pensions DirectiveThe European Commission has published its final proposals for a new Pensions Directive to replace the current Directive, which dates back to 2003. This will have implications for both DB and DC schemes and is likely to be required to be brought into national law by the end of 2016.

US Foreign Account Tax Compliance ActThe US Foreign Account Tax Compliance Act comes into force with possible implications for UK occupational pension schemes. Trustees should check

investment managers have the situation in hand.

Money Purchase BenefitsIn response to, and in order to overturn the 2011 Supreme Court ruling in Houldsworth v Bridge Trustees, the new narrower statutory definition of money purchase benefits is to be brought into force on 24 July. For some schemes this means they will cease to be regarded as money purchase schemes.

Future Scope

Find Out MoreFor more information on any of these aspects, contact your usual consultant or visit www.xerox.co.uk/hrconsulting